This is how a ‘Made in China bullet’ has stabbed into the body of the giant Foxconn

Tram Ho

In October 1988, Terry Gou (or Guo Daiming) finally stood his ground on Longhua, Shenzhen. A factory with a scale of over one hundred people is ready to rise on this wasteland. This moment later in history is called the first startup years of Taiwanese entrepreneurs.

At the time, Terry Gou might not have realized how much Foxconn would benefit China’s manufacturing industry, or how many of its electronics manufacturing talent and factory trainees would be trained. out later.

And in the first year of this Shenzhen Longhua factory, there was a modest female worker. She was the first Foxconn worker in China, that year only 21 years old.

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Wang Laichun

Nine years later, the former female worker was promoted to be the “manager” – the highest position a Chinese manager can achieve in a Taiwanese company. When she had enough experience, she chose to leave and with her brother bought the Hong Kong company Luxshare. The female worker was named Wang Laichun, and the company was later known as Luxshare Precision.

After acquiring Hong Kong Luxshare, Wang Laichun started using what he saw and learned at Foxconn, deciding to start with connecting to the old foundry where he used to work. In 2004, Wang Laichun founded Luxshare Precision in Shenzhen and soon became a Chinese company. In 2010, Luxshare Precision was listed on the Shenzhen Stock Exchange and its founder Wang Laichun owned assets worth 2.3 billion yuan.

From an old apprentice at Foxconn, after more than 20 years, she has finally become a rival that can compete with her official master. That was when Luxshare Precision made the iPhone OEM list.

On the evening of July 17, Luxshare Precision issued a notice saying it planned to buy 100% capital of Wistron Investment Co. (Jiangsu) and Wistron Co., Ltd. (Kunshan) for 3, 3 billion yuan. Luxshare Precision plans to invest no more than 600 million yuan and plans to complete related transactions before the end of 2020. After completing this transaction, Luxshare Precision will also become the first iPhone manufacturer. in mainland China.

Previously, the production of iPhones was monopolized by Taiwanese manufacturers. According to calculations by Yuanta Securities Consulting, the ratio of Hon Hai Precision is higher than 70%, Pegatron (Taiwan) exceeds 20% and Wistron Taiwan’s share is less than 5%. And the arrival of Luxshare Precision has been called the “counterattack” of Chinese companies by Nikkei newspaper, aiming to end the monopoly history of Taiwanese companies in producing iPhones.

Foxconn used to build a huge manufacturing fortress, but now the fortress bricks are loose.

Luxshare’s precise attacks

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Luxshare chooses to go from manufacturing accessories to moving toward key Apple products such as iPads and iPhones.

As an “apprentice”, Luxshare Precision recreated almost perfectly Foxconn’s development path. Wang Laichun has clearly learned and seen the nature of Foxconn throughout his career at this company. Of course, she is now not afraid to mention this and has repeatedly stated publicly that the company’s development has been learned from Hon Hai’s model.

After being listed on the Shenzhen Stock Exchange in 2010, having enough money, Luxshare began a series of acquisitions and equitization. In 2011, acquired Kunshan Liantao Electronics and joined Apple’s supply chain. In 2012, acquired another company in a mutually beneficial situation, to enter the field of PFC (flexible circuit board). In 2013, became a shareholder of Taiwan electronic component manufacturer. In 2013, it acquired SUK, a German automotive plastic parts company, and joined the supply chain of luxury car manufacturers.

In addition, Luxshare also has acquisitions in the field of manufacturing electronic and automotive components, gradually expanding its business boundaries. The most important recent deal is Luxshare Precision, which has moved into the field of audio components and assembly, through the acquisition of Suzhou Melody audio component factory in 2017. With this move, Luxshare has successfully joined Apple’s audio supply chain and became the manufacturer of AirPods headphones for the US company.

From 2017 to 2019, Luxshare’s stock price continuously took off. So far, the company has become the largest manufacturer of AirPods. Up to the present time, the market value of Luxshare Precision has been approximately USD 57 billion, while the market value of Hon Hai Precision has fluctuated between USD 30 and 40 billion in recent years.

There is no denying that Luxshare Precision has grown under Hon Hai’s wings. In the early years, most of Luxshare’s revenue came from the foundry division connected to Honhai, produced part of the parts and then handed it over to Foxconn for finishing. The 2010 prospectus showed that Luxshare’s revenue from Foxconn had exceeded 45% for three consecutive years and Terry Guo’s brother Taiqiang Guo also became Luxshare’s third largest shareholder, on the night before the company. listing.

With the policy of “buy, buy and buy”, Luxshare becomes a leading company in the field of manufacturing electronic components and becomes one of Apple’s core suppliers. Through the acquisition of Wistron’s factory, Luxshare finally entered the OEM field.

Compared to product lines like AirPods and Apple Watch, iPhone is Apple’s core business, so it has a higher threshold of requirements. For the current Luxshare, starting with the acquisition is a solid step.

Wistron’s factory in Kunshan has not really entered the high-end Apple business. Previously, the company mainly produced iPhone SE, iPhone 8 and iPhone XR. Because of quality issues, the company was once asked to suspend work for two weeks. In the past two years, the company’s profit margin has continuously decreased and its business report has suffered a continuous loss.

Wistron wants to divest its loss-making business, while Luxshare needs to expand its business boundaries, a mutually beneficial deal.

The worries of Terry Gou

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Apple is very good at supporting small companies to pressure their major partners.

The initial development of Luxshare could not be separated from the support of Hon Hai. But certainly no one wants to witness the “good student, master starved to death” scene.

Although Terry Guo has resigned as chairman of Foxconn, he is still the head of Hon Hai Group. According to Taiwan’s “Economic Daily”, the acquisition of Luxshare has caused shocks to companies in the industry. Liu Young-way, the new president of Hon Hai, also ordered a positive response to the acquisition of Luxshare’s assets.

Of course, Foxconn’s scale and profit are still too large compared to Luxshare. In 2019, Hon Hai achieved operating income of NT $ 5.34 trillion and Luxshare only had a small part. Reports indicate that Luxshare’s acquisition of Wistron will only have a limited impact on Hon Hai and Pegatron for a short time.

But from a competitive perspective, Apple’s annual product output is limited. Every time Luxshare received an order, it meant that other suppliers lost an order. And the most important issue is who “affection” of Apple will be for.

Although Taiwanese foundries are still leading the world, Apple is the type of company that has tasted the “sweetness” of working with lower-end models, rather than becoming partners with large companies. have a higher bargaining power. To control the cost of the entire system, Apple started supporting new companies, which is something Apple has done well in the past. This time, the target being supported is Luxshare.

According to Nikkei’s report, Apple directed Luxshare to invest in Catcher Technology, a supplier of metal chassis for iPhone, hoping to support Luxshare’s challenge to Hon Hai’s position in the electrical assembly industry. death.

In addition to Luxshare, BYD Electronics has also joined Apple’s assembled supply chain. According to a research report published by analyst Ming-Chi Kuo, BYD is expected to replace Guangda to become the sole supplier of iPod Touch assembly by 2020. And in the future the company is also will receive at least 10-20% of iPad assembly orders from Compal. .

Terry Gou has started to worry about the foundation of Taiwan’s entire electronics industry. This is also the backbone of Taiwan’s economy. Since the 1980s, Taiwan has proven that technology and manufacturing are the backbone of the economy. Driven by policies, after years of accumulation, the Taiwan electronics industry has finally achieved its position today.

Among the top 50 semiconductor manufacturers in the world, Taiwan accounts for 8 positions. But at the same time with success, Taiwan is also facing various economic difficulties such as industry flows, insufficient domestic investment and low salaries for new graduates. Therefore, the electronics industry is an area that Taiwan cannot afford to lose.

Counterattack whistle?

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China’s electronics manufacturing industry is launching a counterattack and changes in Apple’s supply chain are a microcosm of it.

In 2012, only 8 companies on the Apple supply chain list came from mainland China, accounting for 2% of total profits. But by 2019, that number had risen to 30, plus a total of 40 Hong Kong companies, surpassing Japan for the first time. Taiwan still has the most companies in Apple’s supply chain, with 46 units.

But pay attention to another number. Compared to 2018, Apple’s supply chain introduced 25 new companies in 2019, including 5 from Hong Kong and 4 from China. And of the 25 companies excluded, Taiwan had 8, while only one was in China. In addition, the number of factories in China is gradually increasing. In 2019, 47.6% of all supply chain companies’ production is concentrated in the mainland.

In the era of PCs and phones, Taiwan is considered the most important “Silicon Technology Island” in the world. After 2010, thanks to industrial development and human resource reserves, China took advantage of labor costs and other advantages to join the global supply chain system, especially the smartphone industry. intelligent. As a result, the relationship between Chinese mainland and Taiwan’s industries has gradually changed from upstream and downstream supplies to parallel competition.

Currently, there are three major manufacturers of wireless headsets – TWS – Goertek, Luxshare Precision and AAC Technologies, all from mainland China. Audio component factories in Taiwan were either acquired, or were replaced.

Due to the advantages of labor costs and the influence of scale, Taiwan’s “destiny” will likely be occupied by China in some parts of manufacturing components with lower technical thresholds, and the moat separating the moat. The last is machine assembly, semiconductor design and manufacture …

Compared to “stamina”, China has more advantages with its large market, large population, complete industrial base and continuous investment incentives. These are things that Taiwan can only look at and envy. However, in the context of a growing Sino-US trade war, companies are gradually considering relocating their supply chains.

Taiwanese manufacturers understand that it is better to make friends instead of becoming enemies. Shortly after the factory was sold, Wistron bought about 3 billion yuan of securities from Luxshare through the companies. The company claims that investing in Luxshare has two purposes, one is financial investment and the other is to strengthen the strategic partnership between the two sides.

Pegatron also increased its ownership in Luxshare by 2.5 billion yuan, with the claim that this increase was primarily a financial investment. In fact, Pegatron has been holding Luxshare shares since early 2014.

In this regard, Hon Hai Group Chairman Liu Young-way said: “In front of current or potential competitors, we maintain a sense of caution at any time, but will not worry first. any challenge. “

In fact, as soon as Foxconn showed the direction for apprentice Wang Laichun, Taiwan’s electronics industry chain also showed the path of developing the electronics industry for both mainland China. The challenges that Hon Hai faces today are exactly what the entire Taiwan electronics industry chain faces in reality.

Reference Sina

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Source : Genk